One of the most substandard business media practices, one that confuses investors more than just about anything, is the way the stunted little souls of the business media draw large conclusions from relatively small daily stock market moves.
We've been through this before, but it bears repeating. The business media, unlike the world at large, operates under the assumption that when there is a
there must always be a
But I want to take a step back this weekend to point out to you the main difference between a summary of market action that'll inform you a bit about what went on that day and one that runs the risk of leading you down the wrong path. The difference, in the end, is between thinking big thoughts and small.
Normally, in life, it pays to think big and draw inferences, conclusions and then extrapolate. But daily movements of the market can be so meaningless or so tethered to fleeting events that you are better off gravitating toward the small. When it comes to a daily stock market move, even the
(say a 100 point move on a 13,000 base) can be so proportionally tiny as to basically be imperceptible.
Is there a
? Well, probably, but it's likely small too. So as you go on, savvy investor, forget the watermelon-sized conclusions that come from daily stock market moves. Leave extrapolation to the, uh, extrapolators.
Instead, look for headlines and articles that review what happened quickly and directly, in small-intellect fashion, and are then done with it. Don't ask for larger guidance and you won't get hit with it over the head.
Now put your hand in mine as we award a few poor examples from this week with the Back of the Hand, and then one or two good ones that are spared the rod.
Crisis? What Crisis? Dow Climbs 133." So screamed a
New York Post
headline Friday, over a story recapping Thursday's decent but statistically insignificant (especially considering the recent turbulence in the market) 1% gain in the
At first glance, I held out the possibility that the headline was being a little wry, alerting investors to the fact that, in past weeks, it seems investors are battening down the hatches for crisis one day, then shrugging off the chance for one the next.
No such luck.
Look for the reach for larger meaning in this hyperventilating lead: "Wall Street shrugged off news of oil hitting an all-time high and sent stocks soaring on the notion they're now undervalued."
Soaring! On the overall notion that they are undervalued! Like that! Presto! A 1% move happened under the larger theme that investors instantly decided the whole thing is undervalued! Of course, the very next morning futures were down because of some concern about a bank in England but, puh-lease. There are big, broad themes for the media to peddle from a 1% move! Get out of their way! When there is a
there is a
Similarly, earlier in the week,
attempted to pull a larger thread out of a 1.4% move in the Dow. Said the
lead: "U.S. stocks rallied the most this month on growing evidence consumers are weathering an economic slowdown and bolstering profit growth."
Growing evidence, I guess, that was valid and inarguable... right up until August retail sales numbers came out a few days later.
These articles earn The Business Press Maven's dreaded "Back of the Hand" award. Now onto the coveted Business Press Maven "Nod of Approval" and, dudes, they've never taken less work to win.
Look at how these more modest, measured looks at daily market action don't look ridiculous after a day or two -- a good litmus test of sound writing and reporting, wouldn't you say?
, writing about that
Sept. 13 rise in the Dow of 1% went with this headline: "Stocks rise after Countrywide gets financing, GM health care talks progress." Nothing flashy, nothing wry, nothing big. Just an accurate little overview that will inform you a little and not run the risk of misinforming you, or giving you some lasting sense that happy days are here again.
piece, just after the close on the 13th, went with the simple but sure: "
McDonald's, financials lift market." Nowhere in the ensuing article were we exposed to the thought that the modest little market move spoke to long-term trends.
A small little note in business journalism, but music to investors' ears.
And just in case long-time readers, who know that from the time I was a boy I've wanted to run an addictive products mutual fund, one that invests only in addictive products, here is a story about how
sin funds have done better than socially responsible ones. Enjoy it this weekend over that dirty martini.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.